Card loan use surges 20.9% in H1 to W28tr

Card loan use in South Korea jumped 20.9 percent in the first half of this year to 28 trillion won ($20.2 billion), driven by a sharp rise in long-term card lending even as short-term cash advances declined. Delinquency rates on card loans also climbed, signaling growing financial strain among borrowers.

The Financial Supervisory Service released data Thursday on first-half earnings of specialized credit finance companies, showing card loan use from January through June totaled 28 trillion won — up 4.8 trillion won from 23.2 trillion won in the same period last year, a 20.9 percent increase.

Card loans are relatively long-term loans that card companies extend to members based on their creditworthiness. Cash advances, by contrast, are short-term borrowings typically used when cardholders need quick cash around their billing dates.

Cash advance use in the first half came to 28.1 trillion won, down 200 billion won, or 0.8 percent, from 28.3 trillion won a year earlier. Combined card lending — card loans plus cash advances — rose 4.6 trillion won, or 9.0 percent, from 51.5 trillion won to 56.1 trillion won, as the 4.8 trillion won gain in card loans more than offset the 200 billion won decline in cash advances.

Delinquency rates on card loans also rose from end-of-last-year levels. The overdue rate on card loan receivables stood at 3.35 percent at the end of June, up from 3.21 percent at the end of last year. The delinquency rate on credit sales receivables edged up from 0.81 percent to 0.86 percent, while the combined rate covering both card loans and credit sales rose from 1.54 percent to 1.61 percent. The overall delinquency rate across all card company receivables — including installment and lease receivables — inched up from 1.52 percent to 1.54 percent.

However, not all asset-quality indicators deteriorated. The substandard-and-below loan ratio — which reflects the share of loans with low recovery prospects due to prolonged delinquency — fell from 1.15 percent at the end of last year to 1.13 percent at the end of June. The substandard-and-below ratio for card loan receivables also dropped, from 2.10 percent to 2.00 percent.

Loan-loss reserves held by card companies stood at 105.6 percent of required levels, with every card company exceeding the 100 percent threshold. The adjusted equity capital ratio, a measure of capital adequacy, came to 20.8 percent, well above the regulatory minimum of 8 percent. The FSS said asset-quality indicators including delinquency rates and substandard-and-below ratios remained broadly stable, and that loss-absorption capacity was generally sound.

Meanwhile, the eight dedicated card companies posted combined net profit for the period of 1.29 trillion won in the first half, up 68.3 billion won, or 5.6 percent, from a year earlier. Revenue from card loans fell 50.5 billion won, but merchant fee income rose 196.3 billion won and installment card fee income increased 100.2 billion won. Credit loss expenses declined 66.1 billion won.

Card spending also increased. Total purchases made with credit and debit cards in the first half reached 635.3 trillion won, up 39.6 trillion won, or 6.7 percent, from the same period last year. Credit card spending rose 6.9 percent to 532.5 trillion won, while debit card spending grew 5.2 percent to 102.8 trillion won.

The 189 non-card specialized credit finance companies posted combined net profit for the period of 2.24 trillion won in the first half, up 25.4 percent from a year earlier, boosted by higher income from leasing, rental and installment operations, securities-related gains, and new-technology finance activities. Their delinquency rate at the end of June rose to 2.29 percent from 2.11 percent at the end of last year, while the substandard-and-below ratio climbed from 2.66 percent to 2.85 percent.

The FSS said it plans to monitor profitability trends at both card and non-card credit finance companies throughout the year, and will continue to encourage voluntary debt restructuring and tighter management of at-risk receivables.